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New SEC Rule Will Offer Up to $60 Million

New SEC Rule to Reg. A Will Offer Up to $60 Million of Securities Annually

New amendments to Super Regulation A are being adopted by the Security and Exchange Commission, along with other new SEC rules and forms to implement Section 401 of the Jumpstart Our Business (JOBS) Act.

Section 401 of the JOBS Act also added Section 3(b)(2) to the Securities Act of 1993, which directions the Securities and Exchange Commission to adopt rules that exempt from the registration requirements of the Securities Act offerings of up to $60 million of securities annually.

The final new SEC rule of Super Regulation A include the following: issuer eligibility requirements, content and filing requirements for offering statements, along with ongoing reporting requirements for issuers in Regulation A offerings. These new SEC rules and form amendments will be effective as of June 19, 2015.

The U.S. Government Accountability office, or GAO, recently reviewed the SEC’s new rule on the amendments for small and additional issues exemptions under the Securities Act, also known as Regulation A. It found the following: the final rules adopt amendments to Regulation A and other rules and forms to implement section 401 of the JOBS Act; the final rules build on current Regulation A and preserve with some modifications, existing provisions regarding issuer eligibility, offering contents, testing the waters, and bad actor disqualifications; the final rules modernize the Regulation A filing process for all offerings, align practice in certain areas with prevailing practice for registered offerings, create additional flexibility for issuers in the offering process, and establish an ongoing reporting regime for certain Regulation A issuers; the rules contain certain additional requirements for Tier 2 offering (such as a requirement to include audited financial statements in the offering documents and to file annual, semiannual, and current reports with the SEC). The GAO also found that the SEC complied with applicable requirements in disseminating the rule.

In simpler terms, the proposed rules will create a two-tier system with easier requirements for small offerings (defined as up to $5 million annually) compared to stricter requirements for larger offerings (up to $60 million annually), while also modernizing the Regulation A filing process to be consistent with current practice for registered offerings. The key impact is that nonpublic issuers would be allowed to raise up to $60 million from non-accredited investors in a public offering. Regulation A offerings are public offerings with no prohibition on general solicitation and general advertising that are exempt from the filing requirements of the Securities Acts of 1933 and 1934. Currently, Regulation A permits unregistered public offerings of up to $5 million of securities in any 12-month period by non-SEC reporting U.S. and Canadian issuers. The Regulation A exemption requires issuers to file an offering statement, which is similar to abbreviated version of a prospectus in a registered offering, in paper format with the SEC.

For more information on Super Regulation A, or the new SEC rules, contact, Zachary O. Fallon, Special Counsel, Office of Small Business Policy, Division of Corporation Finance, at (202) 551-3460; or Shehzad K. Niazi, Special Counsel, Office of Rulemaking, Division of Corporation Finance at (202) 551-3430, U.S. Securities and Exchange Commission, 100 F Street, NE, Washington. DC 20549-628.